EY bridging market study

M&A opportunities are being evaluated by 24% of bridging lenders, claims new EY report

Almost a quarter of bridging lenders (24%) will be considering M&A opportunities over the next 12 months, according to new research.

The latest EY bridging market study surveyed 40 UK bridging finance lenders with a combined bridging loan book of £4.3bn.

This represented an increase on the 11 bridging lenders who participated in EY’s survey last year.

The survey revealed a number of interesting insights into the current state of the bridging market, the key ones being:

  • For the majority of respondents, broker-related channels are most important for loan originations, as opposed to aggregator websites or third-party (non-broker) referrals
  • 74% of respondents believe that the average monthly interest rate fell over the last 12 months. This is in contrast to only 32% of respondents expecting it to decrease over the next 12 months
  • 55% of respondents are expecting an increase in repossessions, a significant increase on people’s view on the last 12 months
  • Respondents have changed their view on competition. Only 39% of respondents are expecting it to increase, whilst 66% believe competition increased over the past 12 months
  • Competition and access to talent are the two most important challenges for bridging lenders
  • 82% of respondents believe Brexit is one of the key challenges impacting the UK bridging finance industry in the next 12 months
  • Some 61% of respondents — most of whom had a loan book of less than £50m — have considered raising debt capital, while 58% looked at product diversification

Furthermore, the survey showed that almost a quarter of bridging lenders (24%) will be considering M&A opportunities over the next 12 months.

The majority of respondents who considered M&A opportunities had a bridging loan book of between £50m-250m.

Nick Parkhouse, partner at EY, stated that there was an acknowledgement across the market that there had been a significant rise over the past five years in the number of bridging lenders in the sector and, as such, a merger of players would be positive. 

He claimed that the two main obstacles to M&A activity were:

  • many businesses were not large enough to attract the attention of private equity
  • where a bridging lender was looking to buy another, there might be a reluctance to pay goodwill (primarily driven by valuation expectations) unless the business they were acquiring could really bring something new

“We believe that bridging lenders will continue to look at M&A and the percentage looking will actually increase,” he added.

“However, the volume of transactions will remain low due to the goodwill issue.”

The EY bridging market study can now be viewed online.

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